Producer prices rose in this morning’s report at the same time Powell’s prepared remarks were released for Congressional testimony this afternoon. The subsequent improvement in bonds makes it tempting to credit Powell’s speech with victory. Powell certainly didn’t hurt as he maintained the same position seen in all recent communications, but it’s important to note that more than half of the gains were intact at 8:30 am. In retrospect, yesterday looks more and more like “supply indigestion” for bonds, so today could be seen as a return to the dominant baseline (except yesterday afternoon, 10-year yields traded in a very narrow range between 1.33 and 1.37 for 4 days in a row).

Economic data / Events

Summary of market movements

08:39

A little stronger to start the overnight session, stable during Asian hours, two-way volatility approaching strength in Europe, and now early domestic trading taking bonds to stronger levels. 10 years down 4.4 basis points to 1.373. UMBS 2.0 up to 6 ticks (.19). No reaction to PPI, but Powell’s comments don’t hurt.

12:48

No real drama for the moment. Moderate gains until 10am and stabilize slightly since then. UMBS 2.0 continues to climb by more than a quarter point and 10-year rates are down almost 5bp to 1.37%.

16:09

Powell’s testimony has been over for over an hour now and bonds are still in the same gradual recovery trend that started during the overnight session. Looks like yesterday was just a setback in the market’s ability to digest the Treasury auction supply and today marked a return to current levels (currently 1.35% in 10-year yields and + 3 / 8th of a point in MBS over the day)